Chapter 6 Case 3
BLACK – answers from the professor’s PowerPoint
BLUE – the professor’s elaboration on the answer
Major going concern problem.
What basis is the financial statement prepared on? Audited financial statement?
Issues with current assets – way too high, trying to maximize the income.
GRANT IN REVENUE!!! Should be 625000. Revenue recognition issue.
Growth revenue is ridiculously overstated.
Big at risk issue – problem with giving current assets as a lump sum.
Grant has been received? Used the money and have no cash to pay. If you have the cash
you didn’t pay the liabilities, if you don’t have the cash, you haven’t paid the liabilities.
Loss in the year.
Grant is a non reciprocal transaction.
How do we report 1 million of the grant?
Net the grant against the asset that the grant was received for. Lowers future
Set up a deferred credit in the long term liability. Lower expense. IFRS.
Same affect on the income.
PPE net of amortization – too high, should have been net of grant if you decided to use
120000 that was capitalized and expense.
Incorporation costs – they are not asset, expensed.
Office equipment – capitalized
Travel in search of land – expense if tax minimization is the objective, in this case
capitalize in the cost of the land.
Cost of calls – capitalize in the cost of the land.
Product development cost – we have the resources, and intend to sell – capitalized
because the product development criteria is met.
Grant negotiation cost – ne